FAQ on the government shutdown

The federal government entered into a shutdown today (October 1, 2013). This affects non-essential services. Approximately 800,000 federal employees have been furloughed (leave without pay). Other essential employees will continue to work, although only military personnel have their pay guaranteed (other essential personnel will likely receive retro-active pay).

Will this affect postal service?

No. Only federal government services that are financed through what is deemed "discretionary spending" ares affected. The postal service does not rely on federal subsidies for its operation. Social Security and Medicare payments will also continue to be made, although there may be a delay in processing new claims. The Veterans Affairs Department, already facing a large backlog in claims, will eliminate overtime payments (so the backlog will increase).

What about military, foreign service, air traffic controllers, TSA workers?

Active duty military will continue to work and be paid; not so the civilian employees of the Department of Defense not considered essential (although the Secretary of Defense recalled all Department personnel later, based on a legal interpretation). Most Embassies and the State Department will continue to operate. Air traffic controllers and TSA employees will also work as usual, as will the NSA and most of the national security apparatus.

So, what will be affected?

National (Federal) Parks, Monuments, and Museums. Federal loan approvals (such as mortgages and small business loans). Most scientists and researchers (for example, at the National Institutes of Health). Most of the functions of the Environmental Protection Agency and the Labor's Department regulatory functions.

Every year both houses of Congress have to approve budgets for the discretionary portion of government spending. Most years, however, they do not approve them in time for the fiscal year (which starts on October 1st), or at all, so "continuing resolutions" (CR) are approved to enable the federal government to continue to operate at the same level of funding.

This year, however, the Republican majority in the House of Representatives, led by Speaker John Boehner, decided that they would not pass a "clean CR", simply extending the operation of the federal government, but would attach amendments to the CR already approved by the Senate to either repeal, defund or delay the Affordable Care Act (ACA), better known as Obamacare. They also passed a repeal of the tax on medical devices that funds a part of ACA.

The ACA is a law of the land, was deemed constitutional by the Supreme Court, and its approval and implementation was a large part of the program presented by President Barack Obama for his election in 2008 and re-election in 2012.

Furthermore, several aspects of the law were already implemented years ago (for example, letting children and young adults to stay covered by their parents' health insurance until they were 26; and eliminating the ability of the health insurance companies to deny coverage for pre-existing conditions for children).

Today (October 1st) another key provision started to operate: the "health insurance exchanges" (either Federal or at the State level), to enable people without health insurance to purchase it. Since the ACA was largely funded by non-discretionary sources of funds, the health exchanges went into effect today despite the "government shutdown".

Is there a precedent for a political party demanding certain conditions in order to approve a "Continuing Resolution" to fund the governmental programs it has already approved?

No. Many commentators, Democratic politicians, and even a few Republican politicians, have compared this tactic to hostage-taking, extortion, or even a childish tantrum. Since the Republicans have been unable to stop Obamacare (by winning elections, or through the Supreme Court), they are resorting to this extreme and dangerous tactic, that could damage the U.S. economy (which is just starting to emerge from recession), and also has negative implications for the democratic and constitutional operation of government. Any time a political party which only has control of one branch of Congress, which in itself is one of three branches of government, they could attempt to utilize this maneuver to impose their positions.

What is/will be the economic impact?

While the markets have remained relatively stable, having already priced-in the possibility of a short shutdown, a longer shutdown would have a negative impact in the economy, shaving several decimal points off the GDP growth rate (depending on how long it goes).

However, if the Republican majority in the House of Representatives proceeds to also carry out its threat not to raise the debt ceiling (the ability of the federal government to issue bonds to finance its deficit), then the economic impact would be quite severe, as it could increase interest rates, create great turbulence in financial and stock markets, and plunge the U.S. (and, possibly, the world) into another recession.

So, what will happen?

Any one's guess. If the leadership of the Republican Party continues to kowtow to the radical fringe of the "Tea Party", the Heritage Foundation, Senator Ted Cruz, and others, the U.S. and global economy will suffer.

This might lead business and financial leaders to pressure the Republicans to come to their senses and stop these extraordinary and irresponsible political tactics.

If not, and the economy suffers a blow, it is likely that voters will "throw out" the Republican majority in the elections scheduled for November 2014 (even despite the extensive gerrymandering, that already led the Republicans to have a majority despite losing the popular vote for the House).

Another possible scenario would be for the few rational, moderate and/or responsible Republican representatives to abandon their party, and become either Independents or Democrats, and caucus with the Democratic Party. This might occur, for example, if the extreme "Tea Party" elements force Boehner out and name one of their own as Speaker of the House.